As you grow your startup, you know you need to prioritize building the right team. And that means finding the right people with the right skill sets, which definitely isn’t easy.
That gets even harder when you’re hiring for finance functions. You’re probably not an expert accountant and you most likely don’t have extensive expertise in financial reporting or compliance. In other words, you’re trying to find people with knowledge and capabilities you might not necessarily know how to vet.
Still, though, your finance department plays an ultra-critical role in your startup’s stability and ability to scale. So it’s worth taking the time to figure out who should be where — and when to grow that team.
The good news? You might not need to hire anyone internally just yet. Let’s talk about the roles your finance department needs to fulfill — and when it makes sense to outsource them vs. hire internally.
What do I need?
Generally, finance departments need three major components:
- A bookkeeper — This person is in the weeds with your startup on a regular basis, tracking and handling things like daily deposits, A/P, A/R, and payroll. The bookkeeping role essentially runs your company’s ledger, keeping everything organized and visible. They also prepare key financial documents, like your balance sheet and income statement. If your investors regularly ask for financial reports that you don’t know how to create (or don’t have the time to tackle), you need a bookkeeper.
- An accountant — This role ensures that your startup stays in compliance. That means aligning with local, state, and federal regulations around how you handle your company’s finances. And, of course, your accountant prepares your taxes.
- A Chief Financial Officer (CFO) — This person drives and oversees everything. They bring strategy and forecasting expertise to the table. They come alongside you as a founder to properly orient your startup so that it can successfully and sustainably grow.
What do I outsource?
When your startup is small, you can outsource all three of these roles. Even as they grow, many mid-size companies continue to outsource their bookkeeping and accounting needs. While you can hire internally for those functions, the overhead of a full or even part-time employee might not make financial sense.
Similarly, lots of younger or smaller companies outsource their CFO. This is called a fractional CFO. Hiring a fractional CFO means you get the expertise of someone who has extensive experience guiding finance departments — without having to pay their full salary.
The right fractional CFO will be committed to your startup and should help guide you forward. That said, no outsourced hire is ever going to be as fully invested in what you’re doing as someone you bring onto your team full-time. With that in mind, let’s talk about hiring the first member of your finance team.
Who should be my first finance hire?
In our experience, startups thrive when they make a CFO their first finance function hire.
While a fractional CFO can absolutely help you in the early stages of growing your company, once you have the bandwidth and overhead to bring on a full-time finance staff member, filling this gap in your C-suite makes sense.
With a CFO on your team, you get someone who can both see the big picture of your company and zoom into the details. They can problem-solve, strategize, and forecast so you’re in the best position both today and in the future.
Your CFO also plays a critical role as you undertake future rounds of fundraising. They give you a way to answer the finance questions VCs, banks, angel investors, etc. will undoubtedly have. And their expertise can help legitimize your startup in the eyes of investors.
Plus, if you face an audit, your CFO can help you navigate through it, too.
CFO vs. finance director
A CFO and a finance director have fairly similar roles, especially at a smaller company. You should hire a CFO, though. You want someone with expertise driving a finance department, and a CFO should deliver that.
Who do I hire after that?
With an internal CFO and outsourced bookkeeping and accounting, your startup should be set up for success for a while. As you scale, though, the time will come to grow your finance function. Here are our recommendations for next hires:
Controllers oversee bookkeeping. Your CFO probably handled this, interfacing with your bookkeeper in the beginning. As your company grows, though, you want to free up your CFO for strategy, fundraising, and other forward-focused work.
Hiring a controller gives you the assurance that what you’re outsourcing is getting handled properly. At the same time, you get an internal team member who can develop financial reports and interpret those reports to help your company make data-based decisions about how to move forward.
As you start picking up steam, it’s easy to get moving too quickly. The last thing you want is to think you’re cruising only to find you have liquidity problems or another financial risk.
A treasurer specializes in cash and risk management. They can help your company develop policies to ensure that cash flow isn’t an issue, then enforce them to keep adequate capital at your fingertips.
Again, this is a function your CFO probably handles in your early days. As you grow, though, it may make sense to hire for this role.
Eventually, you’ll want to bring on dedicated finance managers for your A/R and A/P. Not only will they monitor those accounts to ensure nothing slips through the cracks, but they can also help you pinpoint opportunities to boost efficiency, further supporting your cash flow.
Then, as your startup scales, you can hire teams under the managers.
Let’s summarize all of this. Your startup should find a way to fill its need for bookkeeping, accounting, and finance strategy (i.e., a CFO). In the beginning, you can outsource all of this.
As you grow, make a CFO your first internal hire. That person can then help you make strategic decisions about how to grow your finance function from there.
In the meantime, we’re here. At ShayCPA, we offer bookkeeping, accounting, and fractional CFO services specifically tailored to tech startups. If you want to learn more, contact us.